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Medicare Plans Administrative Expense Growth Accelerated in 2017

Business Wire

PHILADELPHIA--(BUSINESS WIRE)-- Medicare-focused health plans had administrative cost increases of 5.3% in 2017, the highest since 2012. This compares to last year’s increase of 0.8%. Increases are calculated for continuously participating plans, after backing out the effect of mix changes.

On an as-reported basis, per member costs increased by 4.5% compared with 0.1% in the prior year. Cost increases exclude the effect of ACA-related and other taxes, which plummeted, and led to total administrative expense decline of 4.6%.

After eliminating the effects of mix differences, Account and Membership Administration grew by 3.7% per member, which is slightly higher than the growth posted in 2016. Medical and Provider Management flipped from a decline to an increase of 5.7% in 2017, while the Corporate Services Cluster and Sales and Marketing grew by 5.1% and 5.0%, respectively.

Marketing was the most rapidly growing function overall, as well as the most important source of growth for Medicare plans. Information Systems and Rating and Underwriting were also impactful sources of growth.

Staffing ratios were higher, while compensation increased moderately, and outsourcing was slightly higher than last year.

The median total costs for the universe were $39.80 per member per month, higher than last year’s $38.10. The median administrative expense ratio was 8.5%, which was relatively flat from last year.

Additional information was published recently in Plan Management Navigator, and is posted here.

We will discuss the results via free web conference on Friday, September 28th from 2:00 PM to 3:00 PM Eastern Daylight Time. Douglas Sherlock will offer a brief presentation, followed by questions and answers. To participate in the web conference, please register at sherlockco.com/webinar. Once registered, dial-in information and a link to connect will be provided in a confirmation email.

The Navigator analysis excerpts from the 2018 Medicare edition of the Sherlock Benchmarks. This benchmarking study analyzes in-depth surveys of 11 health plans with a plurality of their business stemming from Medicare Advantage and collectively served 5.1 million comprehensive members.

Health plans that optimize their administrative costs amplify their operating profits and mute operating losses. “Managing what you measure” facilitates achievement of that goal. In a competitive environment, measurement implies comparison with the leaders in your industry.

The Sherlock Benchmarks reflect 818 health plan years of experience spanning 21 consecutive years. They are “the gold standard” of benchmarks used to measure and manage health plan administrative activities. Thus planning, budgeting and cost-benefit analyses are credibly informed by the Sherlock Benchmarks.

Sherlock Company (www.sherlockco.com), based in North Wales, Pennsylvania, provides informed solutions for health plan financial management. Since its founding in 1987, Sherlock Company has been known for its impartiality and technical competence in service to its clients.